The Principles of Political Economy
by John Stuart Mill
Book 3: Distribution
Chapter 17
Of International Trade
1. The causes which occasion a commodity to be brought from a
distance, instead of being produced, as convenience would seem to
dictate, as near as possible to the market where it is to be sold
for consumption, are usually conceived in a rather superficial
manner. Some things it is physically impossible to produce,
except in particular circumstances of heat, soil, water, or
atmosphere. But there are many things which, though they could be
produced at home without difficulty, and in any quantity, are yet
imported from a distance. The explanation which would be
popularly given of this would be, that it is cheaper to import
than to produce them: and this is the true reason. But this
reason itself requires that a reason be given for it. Of two
things produced in the same place, if one is cheaper than the
other, the reason is that it can be produced with less labour and
capital, or, in a word, at less cost. Is this also the reason as
between things produced in different places? Are things never
imported but from places where they can be produced with less
labour (or less of the other element of cost, time) than in the
place to which they are brought? Does the law, that permanent
value is proportioned to cost of production, hold good between
commodities produced in distant places, as it does between those
produced in adjacent places?
We shall find that it does not. A thing may sometimes be sold
cheapest, by being produced in some other place than that at
which it can be produced with the smallest amount of labour and
abstinence. England might import corn from Poland and pay for it
in cloth, even though England had a decided advantage over Poland
in the production of both the one and the other. England might
send cottons to Portugal in exchange for wine, although Portugal
might be able to produce cottons with a less amount of labour and
capital than England could.
This could not happen between adjacent places. If the north
bank of the Thames possessed an advantage over the south bank in
the production of shoes, no shoes would be produced on the south
side; the shoemakers would remove themselves and their capitals
to the north bank, or would have established themselves there
originally. for being competitors in the same market with those
on the north side, they could not compensate themselves for their
disadvantage at the expense of the consumer: the mount of it
would fall entirely on their profits; and they would not long
content themselves with a smaller profit, when, by simply
crossing a river, they could increase it. But between distant
places, and especially between different countries, profits may
continue different; because persons do not usually remove
themselves or their capitals to a distant place, without a very
strong motive. If capital removed to remote parts of the world as
readily, and for as small an inducement, as it moves to another
quarter of the same town; if people would transport their
manufactories to America or China whenever they could save a
small percentage in their expenses by it; profits would be alike
(or equivalent) all over the world, and all things would he
produced in the places where the same labour and capital would
produce them in greatest quantity and of best quality. A tendency
may, even now, be observed towards such a state of things;
capital is becoming more and more cosmopolitan; there is so much
greater similarity of manners and institutions than formerly, and
so much less alienation of feeling, among the more civilized
countries, that both population and capital now move from one of
those countries to another on much less temptation than
heretofore. But there are still extraordinary differences, both
of wages and of profits, between different parts of the world. It
needs but a small motive to transplant capital, or even persons,
from Warwickshire to Yorkshire; but a much greater to make them
remove to India, the colonies, or Ireland. To France, Germany, or
Switzerland, capital moves perhaps almost as readily as to the
colonies; the difference of language and government being
scarcely so great a hindrance as climate and distance. To
countries still barbarous, or, like Russia or Turkey, only
beginning to be civilized, capital will not migrate, unless under
the inducement of a very great extra profit.
Between all distant places therefore in some degree, but
especially between different countries (whether under the same
supreme government or not,) there may exist great inequalities in
the return to labour and capital, without causing them to move
from one place to the other in such quantity as to level those
inequalities. The capital belonging to a country will, to a great
extent, remain in the country, even if there be no mode of
employing it in which it would not be more productive elsewhere.
Yet even a country thus circumstanced might, and probably would,
carry on trade with other countries. It would export articles of
some sort, even to places which could make them with less labour
than itself; because those countries, supposing them to have an
advantage over it in all productions, would have a greater
advantage in some things than in others, and would find it their
interest to import the articles in which their advantage was
smallest, that they might employ more of their labour and capital
on those in which it was greatest.
2. As I have said elsewhere(1*) after Ricardo (the thinker
who has done most towards clearing up this subject) (2*) "it is
not a difference in the absolute cost of production, which
determines the interchange, but a difference in the comparative
cost. It may be to our advantage to procure iron from Sweden in
exchange for cottons, even although the mines of England as well
as her manufactories should be more productive than those of
Sweden; for if we have an advantage of one-half in cottons, and
only an advantage of a quarter in iron, and could sell our
cottons to Sweden at the price which Sweden must pay for them if
she produced them herself, we should obtain our iron with an
advantage of one-half as well as our cottons. We may often, by
trading with foreigners, obtain their commodities at a smaller
expense of labour and capital than they cost to the foreigners
themselves. The bargain is still advantageous to the foreigner,
because the commodity which he receives in exchange, though it
has cost us less, would have cost him more." To illustrate the
cases in which interchange of commodities will not, and those in
which it will, take place between two countries, Mr. Mill, in his
Elements of Political Economy,(3*) makes the supposition that
Poland has an advantage over England in the production both of
cloth and of corn. He first supposes the advantage to be of equal
amount in both commodities; the cloth and the corn, each of which
required 100 days' labour in Poland, requiring each 150 days'
labour in England. "It would follow, that the cloth of 150 days'
labour in England, if sent to Poland, would be equal to the cloth
of 100 days' labour in Poland; if exchanged for corn, therefore,
it would exchange for the corn of only 100 days' labour. But the
corn of 100 days' labour in Poland, was supposed to be the same
quantity with that of 150 days' labour in England. With 150 days'
labour in cloth, therefore, England would only get as much corn
in Poland, as she could raise with 150 days' labour at home; and
she would, in importing it, have the cost of carriage besides. In
these circumstances no exchange would take place." In this case
the comparative costs of the two articles in England and in
Poland were supposed to be the same, though the absolute costs
were different; on which supposition we see that there would be
no labour saved to either country, by confining its industry to
one of the two productions, and importing the other.
It is otherwise when the comparative, and not merely the
absolute costs of the two articles are different in the two
countries. "If," continues the same author, "while the cloth
produced with 100 days' labour in Poland was produced with 150
days' labour in England, the corn which was produced in Poland
with 100 days' labour could not be produced in England with less
than 200 days' labour; an adequate motive to exchange would
immediately arise. With a quantity of cloth which England
produced with 150 days' labour, she would be able to purchase as
much corn in Poland as was there produced with 100 days' labour;
but the quantity which was there produced with 100 days' labour,
would be as great as the quantity produced in England with 200
days' labour." By importing corn, therefore, from Poland, and
paying for it with cloth, England would obtain for 150 days'
labour what would otherwise cost her 200; being a saving of 50
days' labour on each repetition of the transaction: and not
merely a saving to , for it is not obtained at the expense of
England, but a saving absolutely. Poland, who, with corn that
costs her 100 days' labour, has purchased cloth which, if
produced at home, would have cost her the same. Poland,
therefore, on this supposition, loses nothing; but also she
derives no advantage from the trade, the imported cloth costing
her as much as if it were made at home. To enable Poland to gain
anything by the interchange, something must be abated from the
gain of England : the corn produced in Poland by 100 days'
labour, must be able to purchase from England more cloth than
Poland could produce by that amount of labour; more therefore
than England could produce by 150 days' labour, England thus
obtaining the corn which would have cost her 200 days, at a cost
exceeding 150, though short of 200. England therefore no longer
gains the whole of the labour which is saved to the two jointly
by trading with one another.
3. From this exposition we perceive in what consists the
benefit of international exchange, or in other words, foreign
commerce . Setting aside its enabLing countries to obtain
commodities which they could not themselves produce at all; its
advantage consists in a more efficient employment of the
productive forces of the world. If two countries which trade
together attempted, as far as was physically possible, to produce
for themselves what they now import from one another, the labour
and capital of the two countries would not be so productive, the
two together would not obtain from their industry so great a
quantity of commodities, as when each employs itself in
producing, both for itself and for the other, the things in which
its labour is relatively most efficient. The addition thus made
to the produce of the two combined, constitutes the advantage of
the trade. It is possible that one of the two countries may be
altogether inferior to the other in productive capacities, and
that its labour and capital could be employed to greatest
advantage by being removed bodily to the other. The labour and
capital which have been sunk in rendering Holland habitable,
would have produced a much greater return if transported to
America or Ireland. The produce of the whole world would be
greater, or the labour less, than it is, if everything were
produced where there is the greatest absolute facility for its
production. But nations do not, at least in modern times,
emigrate en masse; and while the labour and capital of a country
remain in the country, they are most beneficially employed in
producing, for foreign markets as well as for its own, the things
in which it lies under the least disadvantage, if there be none
in which it possesses an advantage.
4. Before proceeding further, let us contrast this view of
the benefits of international commerce with other theories which
have prevailed, and which to a certain extent still prevail, on
the same subject. According to the doctrine now stated, the only
direct advantage of foreign commerce consists in the imports. A
country obtains things which it either could not have produced at
all, or which it must have produced at a greater expense of
capital and labour than the cost of the things which it exports
to pay for them. It thus obtains a more ample supply of the
commodities it wants, for the same labour and capital; or the
same supply, for less labour and capital, leaving the surplus
disposable to produce other things. The vulgar theory disregards
this benefit, and deems the advantage of commerce to reside in
the exports: as if not what a country obtains, but what it parts
with, by its foreign trade, was supposed to constitute the gain
to it. An extended market for its produce -- an abundant
consumption for its goods -- a vent for its surplus -- are the
phrases by which it has been customary to designate the uses and
recommendations of commerce with foreign countries. This notion
is intelligible, when we consider that the authors and leaders of
opinion on mercantile questions have always hitherto been the
selling class. It is in truth a surviving relic of the Mercantile
Theory, according to which, money being the only wealth, selling,
or in other words, exchanging goods for money, was (to countries
without mines of their own) the only way of growing rich -- and
importation of goods, that is to say, parting with money, was so
much subtracted from the benefit.
The notion that money alone is wealth, has been long defunct,
but it has left many of its progeny behind it; and even its
destroyer, Adam Smith, retained some opinions which it is
impossible to trace to any other origin. Adam Smith's theory of
the benefit of foreign trade, was that it afforded an outlet for
the surplus produce of a country, and enabled a portion of the
capital of the country to replace itself with a profit. These
expressions suggest ideas inconsistent with a clear conception of
the phenomena. The expression, surplus produce, seems to imply
that a country is under some kind of necessity of producing the
corn or cloth which it exports; so that the portion which it does
not itself consume, if not wanted and consumed elsewhere, would
either be produced in sheer waste, or if it were not produced,
the corresponding portion of capital would remain idle, and the
mass of productions in the country would be diminished by so
much. Either of these suppositions would be entirely erroneous.
The country produces an exportable article in excess of its own
wants, from no inherent necessity, but as the cheapest mode of
supplying itself with other things. If prevented from exporting
this surplus, it would cease to produce it, and would no longer
import anything, being unable to give an equivalent; but the
labour and capital which had been employed in producing with a
view to exportation, would find employment in producing those
desirable objects which were previously brought from abroad: or,
if some of them could not be produced, in producing substitutes
for them. These articles would of course be produced at a greater
cost than that of the things with which they had previously been
purchased from foreign countries. But the value and price of the
articles would rise in proportion; and the capital would just as
much be replaced, with the ordinary profit from the returns, as
it was when employed in producing for the foreign market. The
only losers (after the temporary inconvenience of the change)
would be the consumers of the heretofore imported articles; who
would be obliged either to do without them, consuming in lieu of
them something which they did not like as well, or to pay a
higher price for them than before.
There is much misconception in the common notion of what
commerce does for a country . When commerce is spoken of as a
source of national wealth, the imagination fixes itself upon the
large fortunes acquired by merchants, rather than upon the saving
of price to consumers. But the gains of merchants, when they
enjoy no exclusive privilege, are no greater than the profits
obtained by the employment of capital in the country itself. If
it be said that the capital now employed in foreign trade could
not find employment in supplying the home market, I might reply,
that this is the fallacy of general over-production, discussed in
a former chapter : but the thing is in this particular case too
evident, to require an appeal to any general theory. We not only
see that the capital of the merchant would find employment, but
we see what employment. There would be employment created, equal
to that which would be taken away. Exportation ceasing,
importation to an equal value would cease also, and all that part
of the income of the country which had been expended in imported
commodities, would be ready to expend itself on the same things
produced at home, or on others instead of them. Commerce is
virtually a mode of cheapening production; and in all such cases
the consumer is the person ultimately benefited; the dealer, in
the end, is sure to get his profit, whether the buyer obtains
much or little for his money. This is said without prejudice to
the effect (already touched upon, and to be hereafter fully
discussed) which the cheapening of commodities may have in
raising profits; in the case when the commodity cheapened, being
one of those consumed by labourers, enters into the cost of
labour, by which the rate of profits is determined.
5. Such, then, is the direct economical advantage of foreign
trade. But there are, besides, indirect effects, which must be
counted as benefits of a high order. One is, the tendency of
every extension of the market to improve the processes of
production. A country which produces for a larger market than its
own, can introduce a more extended division of labour, can make
greater use of machinery, and is more likely to make inventions
and improvements in the processes of production. Whatever causes
a greater quantity of anything to be produced in the same place,
tends to the general increase of the productive powers of the
world.(4*) There is another consideration, principally applicable
to an early stage of industrial advancement. A people may be in a
quiescent, indolent, uncultivated state, with all their tastes
either fully satisfied or entirely undeveloped, and they may fail
to put forth the whole of their productive energies for want of
any sufficient object of desire. The opening of a foreign trade,
by making them acquainted with new objects, or tempting them by
the easier acquisition of things which they had not previously
thought attainable, sometimes works a sort of industrial
revolution in a country whose resources were previously
undeveloped for want of energy and ambition in the people:
inducing those who were satisfied with scanty comforts and little
work, to work harder for the gratification of their new tastes,
and even to save, and accumulate capital, for the still more
complete satisfaction of those tastes at a future time.
But the economical advantages of commerce are surpassed in
importance by those of its effects which are intellectual and
moral. It is hardy possible to overrate the value, in the present
low state of human improvement, of placing human beings in
contact with persons dissimilar to themselves, and with modes of
thought and action unlike those with which they are familiar.
Commerce is now what war once was, the principal source of this
contact. Commercial adventurers from more advanced countries have
generally been the first civilizers of barbarians. And commerce
is the purpose of the far greater part of the communication which
takes place between civilized nations. Such communication has
always been, and is peculiarly in the present age, one of the
primary sources of progress. To human beings, who, as hitherto
educated, can scarcely cultivate even a good quality without
running it into a fault, it is indispensable to be perpetually
comparing their own notions and customs with the experience and
example of persons in different circumstances from themselves:
and there is no nation which does not need to borrow from others,
not merely particular arts or practices, but essential points of
character in which its own type is inferior. Finally, commerce
first taught nations to see with good will the wealth and
prosperity of one another. Before, the patriot, unless
sufficiently advanced in culture to feel the world his country,
wished all countries weak, poor, and ill-governed, but his own:
he now sees in their wealth and progress a direct source of
wealth and progress to his own country. It is commerce which is
rapidly rendering war obsolete, by strengthening and multiplying
the personal interests which are in natural opposition to it. And
it may be said without exaggeration that the great extent and
rapid increase of international trade, in being the principal
guarantee of the peace of the world, is the great permanent
security for the uninterrupted progress of the ideas, the
institutions, and the character of the human race.
NOTES:
1. Essays on Some Unsettled Questions of Political Economy, Essay
I.
2. I at one time believed Mr Ricardo to have been the sole author
of the doctrine now universally received by political economists,
on the nature and measure of the benefit which a country derives
from foreign trade. But Colonel Torrens, by the republication of
one of his early writings, "The Economists Refuted," has
established at least a joint claim with Mr Ricardo to the
origination of the doctrine, and an exclusive one to its earliest
publication.
3. Third ed. p. 120.
4. Vide supra, book i. chap.ix, sect. 1.